Sizing up Intel’s historic decision to open a fab in China

The rumors are true: Intel is building a new $2.5 billion fab in China. When …

It turns out that the rumors were true: Intel is indeed building a new $2.5 billion chip fabrication facility in China. The newly announced Fab 68, which is scheduled to go online in the first half of 2010, will turn out 300mm wafers on Intel's 90nm process. Intel says that the fab will initially make chipsets, but it's clear that the company would like to make more than that in China.

So why build a 90nm fab that will go online at a time when Intel's CPUs will be produced on a 32nm process and its chipsets will be produced on a 45nm process? There are a few likely reasons, some of which I spelled out in my previous article on this topic.

First, there's the export control issue. The US places strict limits on the exportation of "dual-use" technologies, like cutting-edge semiconductor manufacturing methods, that could potentially be used for military purposes. So the government doesn't want Intel putting a 65nm or smaller plant in China, because the Chinese might steal that technology and use it to make chips for their military hardware. Or, at least that's the supposed to be the primary rationale, though I imagine that maintaining the US's competitive edge in semiconductor manufacturing also has something to do with it. So Intel is building a new 90nm plant in China because 90nm is the smallest process node at which the US will let them build, and even 90nm represents a loosening of previous export controls (they were capped at 180nm).

I'm sure that Intel would love to move this fab down a notch or two in feature size if they can get the US government to let them. This fab gives them a foot in the door, and if they can get the go-ahead to go down to the 65nm node or lower then they'll be that much more competitive and they won't have to start from scratch.

Next, there's the size of the Chinese market, both current and potential. Right now, the Asia-Pacific market makes up a full 50 percent of Intel's net revenues. In China in particular, Intel is far and away the largest seller of semiconductors, with IBM coming up a distant second. So there's a huge existing market for Intel products in China, and that market is growing as China's industrial sector grows. But Intel doesn't want to limit itself to Chinese industry. The company has already started a design center in China that's tasked with finding new uses for computing power among China's largely poor, rural population. For these customers, cost and durability are going to loom much larger than performance, so 90nm products should be fine for those applications.

It's also the case that China's native semiconductor sector, with the sole exception of SMI, is still stuck at the 180nm node. So Intel won't have much in the way of native competition, even though its products will be at 90nm.

Finally, according to the EET, Intel is using a new technology to bring this fab online. Instead of "copy exact," which enables Intel to build fabs rapidly, the new fab technology will keep costs down and should make Fab 68 Intel's lowest-cost fab. So when you combine the size of the Chinese market with the low cost of the new fab and with the Chinese government's incentives, a 90nm fab in 2010 starts to make more sense.